International Business 7e
by Charles W.L. Hill
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 15
Exporting, Importing and
Countertrade
15-3
Introduction

Large and small firms export

Exporting is on the rise thanks to the decline in trade
barriers under the WTO and regional economic
agreements such as the EU and NAFTA
Exporting firms need to

identify market opportunities

deal with foreign exchange risk

navigate import and export financing

understand the challenges of doing business in a foreign
market
15-4
The Promise And Pitfalls Of Exporting

Exporting is a way to increase market size the rest of the
world is usually much larger market than the domestic
market


Large firms often proactively seek new export
opportunities

Many smaller firms are reactive and wait for the world to
come to them

Many firms fail to realize the potential of the export
market

Smaller firms are often intimidated by the complexities of
exporting and initially run into problems
15-5
The Promise And Pitfalls Of Exporting
Common pitfalls include:

poor market analysis

poor understanding of competitive conditions

a lack of customization for local markets

a poor distribution program

poorly executed promotional campaigns

problems securing financing

a general underestimation of the differences and
expertise required for foreign market penetration


an underestimation of the amount of paperwork and
formalities involved
15-6
Improving Export Performance

There are various ways to gain information about foreign
market opportunities and avoid the pitfalls associated with
exporting

Some countries provide direct assistance to exporters

Export management companies can also help with the
export process
15-7
Classroom Performance System
Which of the following is not a common pitfall of exporting?
a) a product offering that is customized to the local market
b) a poor understanding of competitive conditions in he
foreign market
c) poor market analysis
d) problems securing financing
15-8
An International Comparison

A big impediment to exporting is the simple lack of
knowledge of the opportunities available

To overcome ignorance firms need to collect information

Both Germany and Japan have developed extensive

institutional structures for promoting exports

Japanese exporters can also take advantage of the
knowledge and contacts of sogo shosha, the country’s
great trading houses

In contrast, American firms have far fewer resources
available
15-9
Information Sources

The U.S. Department of Commerce is the most
comprehensive source of export information for U.S. firms

The International Trade Administration and the United
States and Foreign Commercial Service Agency can
provide “best prospects” lists for firms

The Department of Commerce also organizes various
trade events to help firms make foreign contacts and
explore export opportunities

The Small Business Administration is also a source of
assistance

Local and state governments can also provide export
support
15-10
Utilizing Export Management Companies


Export management companies (EMCs) are export
specialists that act as the export marketing department or
international department for client firms
EMCs normally accept two types of export assignments:

they start exporting operations for a firm with the
understanding that the firm will take over operations after
they are well established

they start services with the understanding that the EMC
will have continuing responsibility for selling the firm’s
products
15-11
Utilizing Export Management Companies

A good EMCs will help the neophyte exporter identify
opportunities and avoid common pitfalls

However, not all EMCs are equal—some do a better job
than others

Firms that rely on an EMC may not develop their own
export capabilities
15-12
Export Strategy
To reduce the risks of exporting, firms should

hire an EMC or export consultant, to help identify opportunities and
navigate through the tangled web of paperwork and regulations so
often involved in exporting


focus on one, or a few, markets at first

enter a foreign market on a fairly small scale in order to reduce the
costs of any subsequent failures

recognize the time and managerial commitment involved

develop a good relationship with local distributors and customers

hire locals to help establish a presence in the market

be proactive

consider local production

15-13
Export And Import Financing

Over time, various mechanisms for financing exports and
imports have evolved in response to a problem that can be
particularly acute in international trade: the lack of trust that
exists when one must put faith in a stranger
15-14
Lack Of Trust

Many international transactions are facilitated by a third
party (normally a reputable bank)

By including the third party, an element of trust is added

to the relationship
15-15
Lack Of Trust
Figure 15.3:
15-16
Letter Of Credit

A letter of credit is issued by a bank at the request of an
importer and states the bank will pay a specified sum of
money to a beneficiary, normally the exporter, on
presentation of particular, specified documents

The main advantage of the letter of credit is that both
parties to the transaction are likely to trust a reputable bank
even if they do not trust each other
15-17
Draft

A draft, also called a bill of exchange, is the instrument
normally used in international commerce for payment

A draft is simply an order written by an exporter
instructing an importer, or an importer's agent, to pay a
specified amount of money at a specified time

A sight draft is payable on presentation to the drawee
while a time draft allows for a delay in payment - normally
30, 60, 90, or 120 days
15-18
Bill Of Lading


The bill of lading is issued to the exporter by the common
carrier transporting the merchandise
It serves three purposes:

it is a receipt

it is a contract

it is a document of title
15-19
Classroom Performance System
A _______ is an order written by an exporter instructing an
importer to pay a specified amount of money at a specified
time.
a) letter of credit
b) draft
c) bill of lading
d) confirmed letter of credit
15-20
A Typical International Trade Transaction

The typical international trade transaction involves 14
steps as outlined in Figure 15.4
15-21
A Typical International Trade Transaction
Figure 15.4
15-22
Classroom Performance System
Which of the following is not a purpose of the bill of lading?

a) It is a contract
b) It is a document of title
c) It is a form of payment
d) It is a receipt
15-23
Export Assistance

There are two forms of government-backed assistance
available to exporters:
1. Financing aid is available from the Export-Import Bank
2. Export credit insurance is available from the Foreign
Credit Insurance Association
15-24
Export-Import Bank

The Export-Import Bank (Eximbank) is an independent
agency of the U.S. government

It provides financing aid to facilitate exports, imports, and
the exchange of commodities between the U.S. and other
countries

Eximbank achieves its goals though various loan and
loan guarantee programs
15-25
Export Credit Insurance

Export credit insurance protects exporters against the
risk that the importer will default on payment


In the U.S., export credit insurance is provided by the
Foreign Credit Insurance Association (FICA)

FICA provides coverage against commercial risks and
political risks